Indian efforts to persuade Moscow to settle trade between the two countries in rupees have failed with talks now suspended despite months of negotiations, Indian government sources have revealed.
The suspension will be a major setback for Indian importers of cheap oil and coal from Russia who were hoping for a permanent rupee payment mechanism to help lower currency conversion costs.
With a high trade gap in favour of Russia, Moscow believes it will end up with an annual rupee surplus of over $40 billion if such a mechanism is worked out and feels rupee accumulation is ‘not desirable’, an Indian government official said.
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The rupee is not fully convertible. India’s share of global exports of goods also is just about 2% and these factors reduce the necessity for other countries to hold rupees.
India started exploring a rupee settlement mechanism with Russia soon after the invasion of Ukraine in February last year, but there has been no reported deal done in rupees. Most trade is in dollars but an increasing amount is being carried out in other currencies like the UAE dirham.
The two sides have spoken about facilitating trade in local currencies but the guidelines were not formalised.
Russia is not comfortable holding rupees and wants to be paid in Chinese yuan or other currencies, a second Indian government official involved in the discussions said.
“We don’t want to push rupee settlement any more, that mechanism is just not working. India has tried everything we could to try and make this work but it hasn’t helped,” a third source who is directly aware of the developments said.
Since Russia’s invasion of Ukraine on February 24 last year, India’s imports from Russia have risen to $51.3 billion until April 5, from $10.6bn in the same period in the previous year, according to another Indian government official.
Discounted oil has constituted a large part of India’s imports, surging twelve-fold in the period. Exports from India in the same period fell slightly to $3.43bn from $3.61bn in the previous year, the official said.
Third-Party Trade Settlements
Another official said both countries have started looking for alternatives after the rupee settlement mechanism did not work out but did not give details.
The sources said trade with Russia has been continuing despite sanctions and payment issues.
“Right now we are making some payments in dirham and a few other currencies but the majority is still in dollars. Settlement is happening in different ways, third party countries are also being used,” one of the government officials said.
Indian traders are currently also settling some of the trade payments outside Russia, the officials said.
“Third-parties are being used to settle trade with Russia. There is no ban on transacting with other countries over SWIFT. So payments are being made to a third country which route it or offset it for their trade with Russia,” the other official said.
On whether money was also being routed via China, the official said: “Yes, including China”.
- Reuters with additional editing by Sean O’Meara
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